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Executive Summary

American Cyanamid's purchase of a controlling interest in Immunex gives it access to a pipeline of cytokine-derived products led by the fusion-protein PIXY-321 and a host of earlier-stage cytokine receptors. Under terms of the Dec. 15 agreement, "Cyanamid and Immunex will coordinate research and development efforts on new oncology products, with Immunex having exclusive rights to those products in North America and Cyanamid having similar rights in all other countries as well as right of first refusal on new Immunex products other than anticancer drugs for markets outside of North America," the two companies said. Among Immunex' research projects, the Pixykine (PIXY-321) granulocyte-macrophage colony stimulating factor/interleukin-3 hybrid has been featured most prominently by the company. The product is currently in Phase II/III trials for chemotherapy- induced neutropenia and thrombocytopenia. Earlier this year, Immunex swapped overseas rights to the molecule to Bristol-Myers Squibb in exchange for marketing rights to 10 BMS oncology products ("The Pink Sheet" Feb. 3, p. 6). That agreement remains in place. Other oncology products under development by Immunex include IL-1 alpha and beta, both of which are in clinicals for melanoma treatment and chemotherapy-induced neutropenia. IL-1 alpha is also in clinicals for thrombocytopenia associated with chemotherapy. Syntex has marketing rights for the two products in certain markets for certain indications. Noncancer products under development by Immunex include soluble IL-1 receptor, which is in Phase I/II for various autoimmune diseases; tumor necrosis factor receptor, which is in Phase I for sepsis and preclinicals for cachexia; IL-4 receptor, in preclinicals for anti-inflammatory indications; IL-7 receptor, in preclinicals for diabetes and organ transplant rejection; and topical IL-1 beta, in Phase II for wound healing. The cytokine receptors research program will be reacquired by Immunex from its Receptech spinoff for $59.4 mil. in cash, Immunex said Dec. 15. Cyanamid will pay $350 mil. for a 53.5% stake in Immunex and merge the oncology business of Lederle Labs into Immunex. "Cyanamid also will contribute additional cash or other consideration to the new company if sales of products from its North American oncology business do not achieve projected growth levels in the years 1993 through 1997," the companies said. Immunex shareholders will receive $21 per share and one share of the new company. There are currently about 18 mil. shares outstanding, so Immunex will pay out a total of $380 mil. to shareholders. Following the merger, there will be 40 mil. shares outstanding. Cyanamid will have rights to increase its ownership of Immunex up to 70% through open market stock purchases. The merger must be approved by the Federal Trade Commission and by shareholders of Immunex. A proxy statement is expected to be mailed in the first quarter of 1993, Immunex said, and a shareholder vote is expected for the second quarter. Cyanamid shareholders do not have to approve the merger. The agreement differs from other moves by established pharmaceutical firms into partial ownership of biotechs. First, Cyanamid is paying much less cash than, for example, American Home Products' $666 mil. purchase of 60% of Genetics Institute last year ("The Pink Sheet" Sept. 23, 1991, p. 6). Second, Cyanamid will not have the option to move to 100% ownership, a key part of both the AHP/Genetics Institute deal and Roche's buy-in to Genentech. Finally, Cyanamid will be transferring $100 mil.-plus in revenues from its bottom line to the new company. Cyanamid described the merger as a combination of Immunex' biotechnology/immunology approach to cancer therapies with Lederle's chemistry/pharmacology approach to create "an exceptional scientific platform for the long-term success of our pharmaceutical business." Lederle has an established but mature line of oncology products, including methotrexate, leucovorin, thiotepa and Novantrone (mitoxantrone), developed in-house by the company. In the short term, the Immunex/Lederle merger will bolster the marketing support for Immunex' lead cytokine, Leukine (sargramostim, GM-CSF). The combined company will have 120 reps detailing the product. Lederle's 70 oncology reps will join Immunex' field force of 50 to detail GM-CSF in the U.S. The combined sales force will market a line of 14 oncology drugs: the four contributed by Lederle, four products acquired by Immunex from BMS in the PIXY- 321 trade; five comarketed with BMS; and Leukine. The 14 products are projected to have 1993 sales of $200 mil., Lederle and Immunex estimated. Lederle's oncology line will generate sales of about $115 mil. this year, the companies said. Immunex product sales through nine months were $37.7 mil., including $18.1 mil. in Leukine sales. Leukine has not matched the marketing success of Amgen's G-CSF product Neupogen (filgrastim). Both products were launched in the spring of 1991, although Neupogen is broadly labeled as an adjunct to chemotherapy while Leukine is limited to use in bone marrow transplant patients. Nevertheless, Neupogen's success (likely to top $600 mil. in sales in 1992) suggests the potential for both Leukine and PIXY-321. Phase III trials to support a broader Leukine label are ongoing. Immunex' decision to merge with Lederle followed a six-month strategic review by the Seattle-based biotech firm that was completed in July. The company concluded that it would need to increase spending substantially in all areas. While Immunex still had substantial cash reserves -- it expects to end 1992 with approximately $100 mil. in cash -- the level of Leukine sales meant that the company could not increase spending and still maintain profitability. Prior to Leukine's approval, Immunex had been predicting that the product would lead the company into the black. Even without increased spending, Immunex was having problems maintaining profitability. During the past year, Leukine sales dropped from quarter-to-quarter, which the company attributed to alleged giveaways by GM-CSF comarketing partner Hoechst in an April lawsuit ("The Pink Sheet" April 6, T&G-9). The resolution of that suit in July gave Immunex sole rights to Leukine and TNF receptor ("The Pink Sheet" July 27, p. 6). The company lost over $10 mil. for the nine months ended Sept. 30. The suit with Hoechst touched off a collapse in Immunex' market valuation, leaving the company with few options for raising additional capital while, at the same time, it faced pressure to restore investor confidence. An example of the cost of remaining independent can be seen in an August decision by Immunex/Receptech to "de-emphasize" IL-4 and IL-7 receptor research in favor of IL-1 and TNF receptors, despite progress in the IL-4 and IL-7 research. In addition to its 70-person sales force, Lederle will contribute 50 researchers and administrative staff based in Wayne, N.J. to the new company. Details of the transition have not yet been established, Lederle said. Staff reductions are not currently planned as part of the merger, Immunex said. Following "the transition period," Immunex CEO Stephen Duzan, 51, will leave the company, Immunex said. "A new CEO will be appointed by the new company's board of directors. The new board will consist initially of three directors nominated by Cyanamid, three directors nominated by Immunex and three independent directors nominated by a committee of both companies." Other management at Immunex will remain in place. Top Immunex execs include President Michael Kranda and Exec VP Steven Gillis, PhD. Lederle's top oncology execs include VP and General Manager of Lederle Oncology Leonard Stevens, who assumed the top cancer marketing post earlier this year ("The Pink Sheet" July 13, In Brief). Lederle's oncology research head is Michael Wick, MD/PhD.

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